Item 7.
Management's Discussion and Analysis of Financial Condition and Results
of Operations:
Management’s
Discussion and
Analysis of
Financial Condition
and Results
of Operations
is intended
to provide information to assist readers in better
understanding and evaluating our financial condition and
results
of
operations.
The
following
information
should
be
read
in
conjunction
with
the
Consolidated
Financial Statements, including the accompanying Notes appearing in
Part II, Item 8 of this
annual report
on Form 10-K.
This section of the annual report
on Form 10-K generally discusses fiscal 2024
and fiscal
2023
and
year-to-year
comparisons
between
fiscal
2024
and
fiscal
2023,
as
well
as
certain
fiscal
2022
items.
Discussions
of
fiscal
2022
items
and
year-to-year
comparisons
between
fiscal
2023
and
fiscal
2022 that are not included
in this Form 10-K can
be found in “Management’s
Discussion and Analysis of
Financial
Condition
and
Results
of
Operations”
in
Part
II,
Item
7
of
the
Company’s
annual
report
on
Form 10-K for the fiscal year ended February 3, 2024.
Recent Developments
Inflationary Cost Pressure and High Interest Rates
The
pressure
on
our
customers’
disposable
income
continued
in
fiscal
2024,
due
to
prolonged
and
persistently high prices caused by high inflation
rates, especially related to housing, groceries and
fuel, as
well as
high interest
rates.
These high
interest rates
have adversely
affected the
availability and
cost of
credit for our customers, including
revolving credit and auto loans,
and continue to negatively impact
our
customers’ disposable income.
Our customers’
willingness to purchase
our products may
continue to
be
negatively impacted by these inflationary pressures and high interest
rates.
Although
interest
rates
and
inflation
have
decreased,
we
believe
the
pressure
on
our
customers’
disposable income
adversely impacted
fiscal 2024
and will
likely continue
to have
a negative
impact on
consumer behavior and, by extension, our results of operations and financial condition during
at least part
of fiscal 2025.
Merchandise Supply Chain and Tariff Pressures
A significant amount of
our merchandise is manufactured
overseas, principally in Southeast
Asia, and
traverses
through
the
Panama
Canal
or
the
Suez
Canal.
In
the
first
quarter
of
2024,
the
drought
conditions
experienced
in
the
region
surrounding
the
Panama
Canal
reduced
the
number
of
transits
by
approximately 37% and
also reduced the
permissible draft of
vessels transiting the
Panama Canal, which
reduced the volume
and number of
containers carried by container
ships and increased
our costs.
These
conditions improved as
the Panama
Canal authority
increased the
daily transits
and the
permissible draft
of vessels, raising the number of
transits to 95% of pre-drought operations in the
second quarter and back
to pre-drought
levels in
the third
and fourth
quarters. The
hostilities affecting
the region
surrounding the
Suez Canal are causing container ships to travel longer distances around the Cape of Good Hope, which is
increasing lead times for merchandise and
our costs to ship these
goods, as well as decreasing the
pool of
containers
available.
The
combination
of
these
situations
has
negatively
impacted
fiscal
2024.
In
addition,
the
third
and
fourth
quarters
were
impacted
by
later
shipments
in
part
due
to
congestion
at
certain Asian
ports. In
the third
quarter,
our shipments
were negatively
impacted by
the U.S.
port strike
on
the
east coast
and civil
unrest in
some Asian
countries that
caused
merchandise to
miss its
shipping
windows.
Though
conditions
incrementally
improved
in
the
fourth
quarter,
we
believe
the
totality
of
these conditions
will likely
continue to
have a
negative impact on
our results
of operations
and financial
condition for the foreseeable future.
In
addition
to
the
supply
chain
issues,
the
newly
implemented
additional
provisional
tariffs
on
Chinese products may have several impacts on the results
of our financial operations. Our costs associated
with products made in China are likely to increase. These cost increases will negatively impact our results
of
operations
and
financial
condition
unless
we
are
able
to
mitigate
these
costs
by
having
our
vendors
31
share
the
costs
of
tariffs,
increase
retail
pricing
or
move
production
to
another
county.
Certain
product
categories
such
as
shoes
and
handbags
will
be
difficult
to
source
in
other
countries.
These
provisional
tariffs
may also
cause supply
chain issues,
as companies
move production
from China.
Potential supply
chain
issues
such
as
products being
late
due
to
port congestion,
longer
transit times
and
dwell
times
at
port,
and
container
availability
may
impact
the
costs
we
pay
for
ocean
freight
or
the
timeliness
of
our
product deliveries, any of which may
negatively impact our results of operations
and financial condition.
Results of Operations
The table below sets forth certain financial data of the Company
expressed as a percentage of
retail sales for the years indicated:
Fiscal Year Ended
February 1, 2025
February 3, 2024
Retail sales ....................................................................
100.0
%
100.0
%
Other revenue..................................................................
1.2
1.1
Total revenues ................................................................
101.2
101.1
Cost of goods sold ...........................................................
68.0
66.3
Selling, general and administrative........................................
36.1
36.1
Depreciation ..................................................................
1.5
1.4
Interest and other income ...................................................
1.8
0.7
Loss before income taxes ................................................
(2.5)
(2.0)
Net loss....................................................................
(2.8)
%
(3.4)
%
Fiscal 2024 Compared to Fiscal 2023
Retail sales
decreased by
8.3% to
$642.1 million
in fiscal
2024 compared
to $700.3
million in
fiscal
2023. Fiscal 2024 had 52 weeks versus 53 weeks in fiscal 2023. The decrease in retail sales
in fiscal 2024
was
primarily
due
to
a
3.2%
decrease
in
same-store sales,
from closed stores in
2023
and
an
additional
week
of
sales
in
2023.
Same-store
sales
for
the
fiscal
year
2024
decreased
primarily
due
to
lower
transactions, partially offset by fewer returns and slightly higher average sales per transaction. Same-store
sales
includes
stores
that
have
been
open
more
than
15
months.
Stores
that
have
been
relocated
or
expanded
are
also
included in
the
same-store sales
calculation
after
they
have
been
open
more
than
15
months.
In fiscal 2024 and fiscal 2023, e-commerce sales were less than 5%
of total sales and same-store
sales. The
method of
calculating same-store sales
varies across the
retail industry.
As a
result, our same-
store sales
calculation may
not be
comparable to
similarly titled
measures reported
by other
companies.
Total
revenues, comprised of
retail sales
and other
revenue (principally finance
charges and
late fees
on
customer accounts receivable,
gift card breakage, shipping
charges for e-commerce purchases
and layaway
fees), decreased by 8.2% to
$649.8 million in
fiscal 2024 compared to
$708.1 million in
fiscal 2023. The
Company
operated
1,117
stores
at
February
1,
2025
compared
to
1,178
stores
operated
at
February
3,
2024.
In fiscal 2024, the Company opened five new stores and closed 66
stores.
Other revenue,
a component
of total
revenues, remained
flat at
$7.7 million
in fiscal
2024 compared
to fiscal 2023.
Credit
revenue
of
$2.7
million
represented
0.4%
of
total
revenue
in
fiscal
2024,
a
$0.1
million
increase compared to fiscal 2023 credit